Ian Spaulding is the Chief Executive Officer of LRQA, a global assurance partner. This article explains ESG compliance for business
The European Parliament approved the Corporate Sustainability Due Diligence Directive (CSDDD). The new law requires larger companies to check supply chains. They must look for forced labour and environmental damage.
In light of this, and similar legislation around the world, CEOs must now ask: How do we gain visibility of these risks and ensure ongoing compliance throughout our operations?
Meeting ESG expectations demands a proactive approach. Digital tools can support risk management. At LRQA we’ve coined this the era of ‘Assurance 4.0’.
Enhancing operational visibility
Due diligence initiatives like CSDDD will only yield worker welfare and sustainability benefits if they can be tailored to the unique requirements of suppliers in affected regions.
For this reason, diligence has no one-size-fits-all solution. Compliance must match each business. The approach, however, can be consistent: robust oversight of operations and processes.
Regular assessments are essential. They identify and mitigate risks to human rights and the environment in company operations and third-party supply chains.
US laws such as the Uyghur Forced Labour Prevention Act and SEC climate rules underscore the urgency. But it’s important for businesses to put the right processes in place to collect data from suppliers and instil best practice throughout supply chains. The challenge is that fragmented supply chains and systems hinder detection, amplifying risks to organisations and their reputations.
Fragmentation can prevent information sharing throughout a supply chain. This lack of sharing can in turn mean a lack of transparency which ultimately results in inefficiencies, a lack of responsiveness and misalignment of activities. At its worst, it can leave risks hidden within the supply chain, which, when uncovered, are a complete surprise to the business further up the chain.
Protecting data
Supply chains also face risks from increased data processing. Third-party partnerships span cloud, data management, hardware, and software. This makes organisations more vulnerable to cyber attacks.
A report published by the Identity Theft Resource Centre (ITRC) revealed that 2023 was the worst year yet for occurrences of data breaches in the supply chain, highlighting that attacks have increased by 2,600% in six years.
The upcoming 2024 EU Digital Operational Resilience Act (DORA) will aid financial institutions manage operational risks, with organisations required to meet regulations surrounding cyber risk management, incident reporting, operational resilience and third-party risk monitoring.
Continuous assurance
A strategy of continuous assurance can help address both reputational and digital threats throughout supply chains.
Using tools like LRQA’s supply chain intelligence platform, EiQ, companies can now achieve near-time monitoring of their data along with their suppliers. This enables close observation of supply chain performance and ESG risks.
Such enhanced monitoring can facilitate a proactive approach to risk management, allowing businesses to quickly identify and mitigate any potential issues before they become a crisis.
The silver lining is that, whilst the CSDDD legislation focuses on human rights due diligence, the monitoring systems, process and reporting structures required can help to deliver a more proactive approach to monitoring all risk across operations, improving integrity and asset protection at the same time.
Data collection and benchmarking capabilities can also be a source for predictive and preventative analytics.
Building a resilient business
The legislation is now in place in the EU and US. These due diligence procedures are becoming the norm. Stakeholders, including investors, will continue to scrutinise businesses and CEOs against these benchmarks.
In an era defined by disruption, businesses that embrace Assurance 4.0 will proactively adapt to compliance challenges, gaining a competitive edge and ensuring financial stability.
Future-proofing your business using tools that can effectively leverage data to predict trends is vital in mitigating challenges even before they arise.
